Palo Alto Networks CEO Claims Share Gains vs. Rivals

As revenues grow, CEO Mark McLaughlin explains the role of threat intelligence in the competitive landscape.

Palo Alto Networks is continuing to grow its revenues as threats against governments and organizations remain top-of-mind concerns.

Palo Alto reported its second quarter fiscal 2016 financial results on February 25, with revenue coming in at $334.7 million for a 54 percent year-over-year gain. Even with that revenue growth, Palo Alto Networks is not a profitable company. The company reported a net loss for the quarter of $62.5 million, an increase over the $43.0 million reported in the second quarter of fiscal 2015. Looking forward, the company provided third quarter guidance for revenue to be in the range of $335 million to $339 million, for a 43 percent to 45 percent year-over-year growth rate.

"Profitability remains elusive for Palo Alto Networks," Jane Wright, Principal Analyst at TBR, wrote in her analysis. "It spent 56 percent of its revenue on sales and marketing, while Fortinet and Check Point spent about 46 percent and 22 percent respectively."

Mark McLaughlin, CEO of Palo Alto Networks, commented during his company's earnings call that in his own analysis, his company is taking share from it rivals. McLaughlin said he looked at the most recent financial quarters for Palo Alto Networks, Cisco, Check Point, Fortinet, and Juniper to compare the total amount of new revenue across all five of those vendors. The total amount of new revenue in the most recent quarter across the five vendors was approximately $300 million, and Palo Alto made about $120 million of that.

"I think it's very obvious that we're taking share from everybody in the space in order for those kinds of numbers to work out that way," McLaughlin said.

McLaughlin noted that in the second quarter, his company added close to 2,000 new customers and now has over 30,000 customers around the world. In particular, he highlighted competitive customer wins where Palo Alto Networks technology replaced McAfee, Check Point and Cisco. As to why Palo Alto is able to displace McAfee in particular, McLaughlin emphasized that it's way more about security than it is about cost.

"So folks are realizing that if you're thinking about security and prevention, which is what they want to do, AV [anti-virus] continues to be less and less relevant there for them," McLaughlin said.

The value of threat intelligence as a standalone business is also something that McLaughlin criticized. In McLaughlin's view, intelligence just needs to be integrated in the platform so customers can benefit from it.

"When I'm talking to customers, I have a lot of customers who are telling me that they think the day of security vendors trying to monetize intelligence is long over," McLaughlin said. "They're very upset with security vendors who come in and try to sell them intelligence as a service, where they're trying to monetize that."